G.R. No. 181858 ; November 24, 2010
KEPCO PHILIPPINES CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS

Petitioner KEPCO Philippines Corporation (KEPCO), a VAT-registered independent power producer, exclusively sold electricity to the tax-exempt National Power Corporation (NPC). For the taxable year 2002, KEPCO filed its VAT returns on a zero-rated basis and subsequently filed a claim for refund of unutilized input VAT amounting to Php 11,710,868.86, attributing it to these zero-rated sales. The claim was filed with the Commissioner of Internal Revenue and subsequently brought before the Court of Tax Appeals (CTA).
The CTA Second Division partially granted the claim but significantly reduced the refundable amount. The reduction was based on two grounds: first, KEPCO only substantiated 44.19% of its declared zero-rated sales; second, a portion of the input VAT was disallowed because the supporting invoices and receipts did not comply with invoicing requirements. Specifically, the CTA disallowed input VAT on purchases supported by documents where the “TIN-VAT” was merely stamped, not printed, and on documents that were not “VAT invoices.” KEPCO appealed to the CTA En Banc, which affirmed the division’s ruling.

ISSUE

Whether the CTA En Banc correctly disallowed a portion of KEPCO’s input VAT claim for failure to comply with the substantiation requirements under Revenue Regulations No. 7-95.

RULING

Yes, the Supreme Court affirmed the CTA En Banc’s decision. The legal logic is anchored on the principle that tax refunds, like exemptions, are construed strictly against the taxpayer, who bears the burden of proof. A claimant must not only establish the factual basis of the claim but also strictly comply with all statutory and regulatory requirements. For input VAT to be creditable or refundable, Section 110 of the National Internal Revenue Code requires that it must be evidenced by a “VAT invoice.”
Revenue Regulations No. 7-95, which implements the VAT law, explicitly provides that only VAT-registered persons are required to print their TIN followed by the word “VAT” on their invoice or receipt, and such document “shall be considered as a ‘VAT Invoice.'” It further mandates that “[a]ll purchases covered by invoices other than ‘VAT Invoice’ shall not give rise to any input tax.” The Court held that this provision is clear: for an input VAT claim to be valid, the supporting invoice must have the “TIN-VAT” printed on it. Merely stamping the “TIN-VAT” is insufficient and does not transform the document into a valid “VAT invoice” as defined by the regulations. Consequently, KEPCO’s failure to present proper VAT invoices for a portion of its purchases was fatal to that part of its claim. The CTA correctly applied the law in disallowing the input VAT attributable to those improperly supported purchases.